Guernsey insurance overview
18 February 2013
Although Guernsey has a distinctive French-Norman legal heritage, its 20th century corporate and commercial laws have largely been based on equivalent UK legislation. Consequently, much of Guernsey's legislation in this area will be familiar to those used to dealing with the UK or other common law systems. Indeed, the decisions of the courts of the United Kingdom, Australia and other Commonwealth countries are frequently relied upon in the Guernsey court.
Like most legal systems, the Guernsey insurance law distinguishes between general insurance and long-term (life) insurance business. Other than in the case of a protected or incorporated cell company, one company cannot be licensed to conduct both long-term and general business.
In addition, a distinction is drawn between domestic insurers, who issue policies to members of the public in Guernsey, and international insurers, like captives, which issue policies elsewhere.
The minimum paid up capital for a Guernsey licensed insurer is £100,000 and an insurer which is a company must maintain shareholders' funds of at least £75,000.
The margin of solvency for general insurers is the greater of:
- 18% of net premium income up to £5,000,000 and 16% thereafter; or
- 5% of the loss reserves.
Where the calculation is based on net premium income, it must be calculated on both a retrospective and a prospective basis, the higher figure being utilised for the purposes of solvency.
For life insurers the margin of solvency is the greater of:
- £250,000; or
- 2½ % of the value of the statutory fund maintained by that insurer. Every Guernsey licensed life insurer is required to maintain an account containing the receipts from the long term business conducted by it.
In addition, life insurers must appoint a Guernsey based trustee to hold in trust assets representing at least 90% of policyholder liabilities.
The Guernsey Financial Services Commission ("the Commission") has the power to vary the minimum capital and margin of solvency requirements where the policyholders of the insurer are jointly and severally liable to satisfy the liabilities of the insurer or where those liabilities can be satisfied from existing arrangements. This is in part intended to enable the Commission to adopt a more flexible approach to the regulation of insurance special purpose vehicles and reflect the Commission's "risk based" approach to solvency.
75% of the assets relied upon by the insurer to meet the margin of solvency must be approved assets. Derivative contracts are not approved assets unless the Commission consents in writing to them being regarded as such.
The approval of the Commission is required for any "change in control" of a licensed Guernsey insurer which, broadly, means a change in a principal officer of the company or a shareholder owning or controlling 15% or more of the share capital.
Every licensed Guernsey insurer is required to have at least one independent non-executive director and must appoint a locally licensed insurance manager or demonstrate that it has appropriate internal management in place with sufficient expertise. In addition, every insurer must appoint a general representative to accept service of official notices in Guernsey - this function is usually fulfilled by the insurance manager (where appointed).
Depending on the type of company, in order to form a company in Guernsey the consent of the Commission may be required. In order to obtain that consent, the identity of the ultimate beneficial owner of the proposed company may need to be disclosed. However, such information is not available for public examination.
Each Guernsey company may have an authorised share capital divided into a given number of shares of a nominal (par) value or an unlimited number of shares of no par value. The shares can be denominated in any currency.
Guernsey companies are required to have a memorandum of incorporation and a set of articles of incorporation, which are registered at the Guernsey Registry. Similar to the position in the UK, the articles set out how the powers of the company are to be exercised.
Every Guernsey company must have a registered office in Guernsey at which the registers of shareholders and directors must be maintained.
An unregulated Guernsey company (for example, one which is not a licensed insurer, authorised fund or licensed bank) is not required to appoint any directors who are resident in Guernsey (although this is often preferable for taxation reasons). Nor is it currently a legal requirement to appoint a secretary. However, it is advisable to appoint a Guernsey resident as secretary to handle local administration requirements. There are a large number of administration companies in Guernsey which provide registered office and secretarial services.
Every Guernsey company is required to file an annual validation by 31 January in each year. That return contains information on the amount of the company's share capital (if applicable), the names and addresses of its directors and the address of the registered office of the company. This limited information is available for public inspection. However, the frequent use of nominee shareholders means it is very often not possible to obtain details of the ultimate beneficial owner of a Guernsey company from records available to the public.
Segregated cell companies
Guernsey was the first jurisdiction to introduce legislation in respect of protected cell companies, in February 1997. Such a structure enables a protected cell company ("PCC") to transact business with a third party while limiting its liability to that third party to a specified pool of assets (a cell), rather than exposing all of the assets of the company as a whole.
Since then another form of segregated cell company, the incorporated cell company ("ICC"), has been established. The ICC follows the same principle as the PCC, comprising the incorporated cell company itself and any number of incorporated cells. Like a PCC, the liability of an ICC under a contract can be referable to the ICC itself or to any one of its incorporated cells. The significant difference between the two is that each cell of an ICC is a separately registered legal entity whereas a PCC is a single legal entity. Unlike the cells of a PCC, each incorporated cell has a separate board, its own share capital, its own memorandum and articles of incorporation and produces its own accounts. Whereas the board of a PCC enters into contracts on behalf of the PCC in respect of each of its cells, it is the board of the relevant incorporated cell of an ICC which enters into contracts in respect of the incorporated cell.
As a consequence of the separate legal personality of each incorporated cell:
- a company can be converted into an incorporated cell of an ICC and vice versa: therefore, an incorporated cell of an ICC can be sold off to a third party; and
- like a stand alone company, an incorporated cell can amalgamate with other companies or incorporated cells and migrate to other jurisdictions.